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Implicit Contracts, Labour Mobility and Unemployment

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  • Richard Arnott
  • Arthur Hosios
  • Joseph Stiglitz

Abstract

Firm's inability to monitor employees search efforts results in a tradeoff between risk-bearing and incentive considerations in the design of employment-related insurance. Since the provision of insurance against firm-specific shocks adversely affects workers' incentives to search out better jobs, only partial insurance will be provided to encourage workers to stay (leave) at high (low) productivity firms: in this setting, quits and layoffs are alternative means of inducing separations at low productivity firms. This paper describes the equilibrium labour contract when search information is private, and is thereby able to provide the first unified treatment of risk-sharing contracts, interfirm mobility, worksharing, layoffs, severance pay, on-the-job and off-the-job search, quits and unemployment.

Suggested Citation

  • Richard Arnott & Arthur Hosios & Joseph Stiglitz, 1983. "Implicit Contracts, Labour Mobility and Unemployment," Working Papers 543, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:543
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    Cited by:

    1. Jahn, Elke J. & Wagner, Thomas, 2005. "Contractual Employment Protection and the Scarring Risk of Unemployment," IZA Discussion Papers 1813, Institute for the Study of Labor (IZA).
    2. Bo Sandemann Rasmussen, 2014. "An Interpretation of the Gini Coefficient in a Stiglitz Two-Type Optimal Tax Problem," Economics Working Papers 2014-15, Department of Economics and Business Economics, Aarhus University.
    3. Leonard, J.S. & Van Audenrode, M., 1998. "The Dynamics of Wages and Employment," Papers 9806, Laval - Recherche en Politique Economique.
    4. Tsoulouhas, Theofanis, 1996. "Labor and credit contracts with asymmetric information and bankruptcy," European Economic Review, Elsevier, vol. 40(8), pages 1665-1682, November.
    5. Lam, Kit-Chun & Liu, Pak-Wai & Wong, Yue-Chim, 1995. "Wage structure when wage offers are private," Labour Economics, Elsevier, vol. 2(1), pages 19-32, March.
    6. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June.
    7. Engström, Per, 2002. "Optimal Non-Linear Income Taxation in Search Equilibrium," Working Paper Series 2002:18, Uppsala University, Department of Economics.
    8. Tomi Kyyrä & Ralf A. Wilke, 2007. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 154-182, March.
    9. Burguet, Roberto & Caminal, Ramon, 2008. "Does the market provide sufficient employment protection?," Labour Economics, Elsevier, vol. 15(3), pages 406-422, June.
    10. Kyyrä, Tomi & Wilke, Ralf A., 2006. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland Revised," Discussion Papers 396, VATT Institute for Economic Research.
    11. Jonathan P. Thomas, 1999. "Fair Pay and a Wagebill Arguement for Wage Rigidity and Excessive Employment Variability," Discussion Paper Series, Department of Economics 199919, Department of Economics, University of St. Andrews.
    12. Joseph E. Stiglitz, 1991. "Methodological Issues and the New Keynesian Economics," NBER Working Papers 3580, National Bureau of Economic Research, Inc.
    13. Bo Rasmussen, 2015. "An interpretation of the Gini coefficient in a Stiglitz two-type optimal tax problem," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(1), pages 17-26, March.
    14. Hakola, Tuulia, 2002. "Economic Incentives and Labour Market Transitions of the Aged Finnish Workforce," Research Reports 89, VATT Institute for Economic Research.
    15. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    16. Arnott, Richard & Stiglitz, Joseph E., 1986. "Moral hazard and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 29(1), pages 1-24, February.
    17. Bengt Holmstrom, 1980. "Equilibrium Long-Term Labor Contracts," Discussion Papers 414R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    18. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24639, European Association of Agricultural Economists.
    19. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 Annual meeting, July 24-27, Providence, RI 19522, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Guerrazzi, Marco & Meccheri, Nicola, 2012. "From wage rigidity to labour market institution rigidity: A turning-point in explaining unemployment?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(2), pages 189-197.

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